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- Bilateral Investment Treaty or BIT is an agreement for providing protection to investments by the companies and individuals of one state in another state.
- It is an international investment agreement, which provides for reciprocal commitment to protect each other’s private foreign investment in their territory.
- BITs have become an integral part of investment relations between the countries in the past few decades. They have a significant impact in the framing of international public policy.
- India signed its first BIT with the UK in 1994. Over the subsequent years, it has gone on to sign such treaties with over 80 countries.
- These BITs were negotiated on the basis of the 1993 Indian Model BIT text. This Model BIT text was revised in 2015.
- The ‘India and Bilateral Investment Treaties’ report was submitted by the Standing Committee on External Affairs to the Parliament last month.
What are the highlights?
On the number of BITs:
- The report has articulated discontentment over the fact that India has signed only a few BITs after the adoption of the Model BIT.
- The report recommends that on-going negotiations be expedited and agreements be concluded at the earliest as delays could negatively impact foreign investments.
On the impact of BITs on FDI:
- The committee’s position, unlike the policymakers’ position, is that BITs have a potential in bringing in FDI.
- Empirical studies show that though individual BITs don’t impact the FDI inflows, they have a positive cumulative effect on such investment inflows into the country.
- The committee recommends the signing of more BITs in core/ priority sectors.
On the Model BIT:
- The committee calls for fine-tuning of the Model BIT.
On capacity building:
- The report recommends bolstering the government officials’ capacity in the area of investment treaty arbitration.
Why is this significant?
- The submission of this report is significant in that it comes a decade after India’s loss in the White Industries vs. India case of 2011– India’s first investment treaty claim.
- In this case, the foreign investors sued India about 20 times for alleged breaches of BITs terms. It made India the 10th most frequent respondent state in the world, in terms of ISDS (investor- state dispute settlement) claims between 1987 and 2019, according to UNCTAD.
- This loss was perceived as an ominous sign and became a watershed moment for the trajectory of the country’s BIT landscape.
- Following the 2011 case, sweeping changes took place in the BITs arena, such as the unilateral termination of BITs.
- Also, the report comes at a time when India is negotiating investment deals (either as part of FTAs or separately) with several countries like the UK and Australia.
What is the way ahead?
- BITs are generally not signed in a sector-specific manner. Interestingly, the report calls for signing of BITs in core/ priority sectors- a novel route in investment treaty-making. This requires an overhaul of the extant treaty practice of safeguarding certain regulatory measures from ISDS claims rather than keeping BITs sector-specific.
- The committee’s recommendation to fine-tune the Model BIT is a welcome one as the Model BIT gives precedence to regulatory interests over the foreign investors’ rights. The question is on the trajectory of this fine-tuning.
- The recalibration of the Model BIT should be done while considering 2 factors:
- Tightening the language of provisions to limit ISDS arbitral tribunals’ discretion that allow for broad interpretation
- Achieving a balance between investment protection and the state’s right to resort to bonafide regulatory measures to ensure public welfare
- The report mainly concentrates on the first factor. If the Model BIT is recalibrated with only the first factor in mind, it could result in further disrupting the balance towards the stat’s regulation rights, at the cost of investment protection.
- Disrupting the balance could make convincing potential treaty partners (like the EU, which already has misgivings about India’s Model BIT) even harder.
- The government has already taken some capacity building measures– such as organization of training workshops. However, more needs to be done.
- An institutionalized mechanism for capacity building with the involvement of competent universities (both public and private) could serve the purpose.
- Chairs could be established in universities to foster teaching activities and research in international investment law.
- A huge proportion of ISDS claims arise due to poor governance. Some instances like retroactive changes in laws (leading to the Vodafone and Cairn cases), annulment of agreements following imagined scams (leading to the S-band spectrum being taken away from Devas) and judiciary’s fragility (the courts sat on the White Industries case for years).
- In this context, the report could have emphasized more on policy stability, regulatory coherence and robustness of governance structures as means to avoid ISDS claims.
The committee’s report on BITS has novel suggestions to overhaul India’s BITs landscape. At the same time, it lacks in certain aspects. The government needs to assemble an expert team to review the Model BIT. Care must be taken to involve critical voices in this team as plural viewpoints coalesce into effective policy.